September Is the Scariest Month. Why Is Nobody Scared?
Have investors become complacent?
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Once again, there was very little talk of a scary September. I was certain we would hear it, and I have been a bit disappointed. I mean, in July and August, they couldn’t shut up about seasonality, and now no one even uses that word, let alone any scary talk of September.
I have noted for weeks now, I thought sentiment got giddy in early July, but the market backed off, and mostly what we have seen since then is what I would term complacency. To me, complacency is when you hear comments such as, Well, we could pull back five percent, but that would be fine.
Why do I call that complacency? Because we all know that even a five percent pullback comes on some sort of scary news. And if we get a pullback on some sort of news, we know it gives folks a narrative crutch to lean on. And often, a five percent pullback means they start looking for ten percent. That’s just the way sentiment works.
One reason I say I see complacency is that the Investors’ Intelligence bulls are now at 55%. My rule of thumb is that the upper 50s or low 60s means folks are bullish; the 60s means they are giddy.
The bears are at 17.6%. When the bears are teenagers, we’re often at complacency. But it’s the spread between the two that we should monitor. The ratio is now 3.2. It used to be once the ratio gets over 3.0, things have gone too far, but we often get pretty close to 4.0 now, or even over that. If this gets at/near 4.0, I’ll call that giddy.
We also have the put/call ratios. They don’t get so low anymore, probably because the market has been so choppy for the last few months. But take a look at the ten-day moving average of the equity put/call ratio. It has been making higher lows since May and higher highs. Keep in mind the markets have gone nowhere.
But it is the 30-day moving average that I have my eye on. Notice how it hasn’t made a lower low since December and is now approaching where it was in April. April!!! Does that mean folks are actually bearish now? I would say that if we were able to get a whack in September, all the complacency I see now would probably morph quickly into bearishness, and this would scoot right up, pushing it from complacent to concerned very quickly.
In other words, sentiment-wise, I think a pullback would change sentiment in a hurry, so just as everyone got scared, we’d probably see the market get to a decent oversold condition and sentiment get scared.
But we can’t seem to get there because all we get is group rotation that lasts a week at most. That means we get markets like we’ve seen the last few weeks: up and down, with no direction.
One final note to report is that the DSI for gold is now 88. That’s pretty hot.
